Information Technology and Administrative Efficiency in U.S. State Governments - A Stochastic Frontier Approach
60 Pages Posted: 21 May 2010 Last revised: 22 Dec 2014
Date Written: May 19, 2011
This paper aims at exploring value creation from information technologies in governments. While the majority of studies in the information systems discipline have focused on discovering IT business value in for-profit organizations, the question of whether the performance effect of IT exists in the public sector has not been extensively studied so far in either the information systems or public administration literature. We examine whether IT improves administrative efficiency in U.S. state governments. Utilizing the IT budget data in state governments, the census data on state government expenditures, and a variety of information on public services states provide, we estimate technical cost inefficiency, an inverse proxy for administrative efficiency, with a stochastic frontier model. Our analyses provide evidence for a significantly negative relationship between IT intensity and cost inefficiency. Our results indicate that all others being equal, on average, a $1 increase in per capita IT budget can lead to $4.18 efficiency gains. This study contributes to the IS literature by expanding the scope of IT value research to the public sector organizations and brings a new methodological approach to measure the performance impact of IT.
Keywords: IT Value, U.S. State Governments, Translog Cost Function, Stochastic Frontier
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